Whenever the economy is being discussed, the focus is on large scale manufacturers and titans of industry that drive economic growth and decision making. These big names and personalities come with a certain allure, and in the face of this, what often goes ignored are smaller scale enterprises.
Categorized in economic jargon as small and medium enterprise (SMEs), these seemingly unassuming firms are, or at least should be, the true engine of economic growth. SMEs in Pakistan are generally those firms that have fewer than 50 employees, and despite this, there are enough to leave a huge impact. The Pakistani economy consists of almost 3.3 million Small and Medium Enterprises. These may consist of (amongst many other variants) service providers, manufacturing units and startups. SMEs make up over 30% of Pakistan’s GDP and approximately 25% of generating exports.
The fact is that the higher the share of SMEs in economic growth, the higher the level of income as they play an important role in job creation and product innovation. One of the places that has particularly been identified for the success of SMEs is Punjab, which has a huge potential for exports. However, SMEs here seem to be stagnant instead of growing, mainly due to the lack of basic facilities for SMEs and the system that has been created for them has a weak structure.
The development of SMEs is possible only when the root causes of their stagnation are properly addressed. It was to this end that the Punjab government recently launched an initiative to support SMEs and provide them with technical assistance. This was the cluster development initiative (CDI). The logic was that with economic development, certain businesses could pop up in a cluster in one particular and very specific geographical area.
Take for example, Lahore, where there is a concentration of eateries on M.M.Alam road and Mall1 in Gulberg. Essentially, a few restaurants initially opened up here and became popular, and that resulted in more people investing in that business in that particular area. The same is the case with Hafeez Center or Hall Road in Lahore for electronics. This is what the government wants to pull off, except for export oriented industries instead of for consumer industries.
Examples of these clusters that were identified included Surgical Instruments in Sialkot, Auto Parts in Lahore, Readymade Garments in Lahore, Leather Footwear and Products in Lahore, Sports Goods in Sialkot, Electric Fans in Gujrat, Cutlery and Hunting Knives in Wazirabad, and Gloves in Sialkot.
What happened? Exactly what happens to any seemingly good idea in Pakistan. It is drawn up and presented in all kinds of shiny, elaborate ways. Then it is handed over to incompetent people for implementation who forget the mission and choose to focus on eyewash, creating fancy offices and expensive marketing campaigns, focusing all their energies on photo-ops, and in the end the projects go incomplete, and are quietly shelved with none of the pomp and circumstance with which they were started. From here, they lie comatose, a place for bureaucrats to go relax and do no work while getting paycheques and benefits. This is the story of one particular project, but you might as well fit it on any other.
A promising idea
The story began when the Punjab government adopted the Punjab Growth Strategy 2018 for private sector development, which resulted in an annual GDP growth of 8 percent in the province. One of the basic tenets of the strategy was the development of the industrial sector, which could undoubtedly not only pave the way for growth but also increase exports, including increasing employment opportunities. As the Punjab government was a part of the development plan, an initiative was also introduced by the government for manufacturing businesses in clusters as explained above.
The project was very interesting, and garnered the attention of the World Bank, which sent a mission to visitPakistan to support the implementation of key parts of the Industrial Development Plan and to review the current mandate and functions of the project. However, the World Bank Mission also conducted interactive sessions with the provincial departments of Punjab and designed a program called Jobs and Competitive Program for Results (J&CP for R). In this context, the Government of Punjab has signed an agreement with the World Bank for a $100 million supplemented by $180 million by the provincial government. The total $280 million includes a$ 6 million component for technical assistance for the development of several industrial clusters in Punjab province, and to support their further integration into global value chains; i.e. the Cluster Development Initiative (CDI).
The CDI was aimed at industrial growth, and the benefits that come with it. Similarly, the other objectives of the project were to increase the production, profitability, technology upgrade and quality of industries and gearing up the high growth clusters to penetrate in the international markets and rise in exports. With industries in clusters, it is much easier to obtain economies of scale. And since this is geared towards SMEs, the increased competition or even collaboration will result in the quality of the overall industry improving.
All in all, this was a solid economic initiative. So where’s the problem? As with all things shiny and hopeful in Pakistan, it was the implementation. The project was being spearheaded by the Punjab government, but the responsibility of implementing the project was delegated to the Punjab Small Industries Corporation (PSIC), which is working on this project in collaboration with United Nation Industrial Development Organization (UNIDO).
The project was planned to start in July 2016 and was scheduled to be completed by December 2021, but because of our government affairs and bureaucratic whims, the project started late and has yet to be completed. However, according to information available to Profit, the project is the subject of an investigation that suggests that it will be further delayed.
How wrong did it go?
It is very clear that the project was initiated to support cluster based development to facilitate industrial growth, and was approved by the Provincial Development Working Party (PDWP) with a final approved cost of Rs588.479 million with a project gestation period of almost four years from 2016 to 2021. However, according to some documents obtained by a sub department of the Planning and Development Board revealed that the actual expenditure of the project was RS 388.680 million, which shows 80 percent financial utilization against the released amount of PKR 487.227 million. Now, it remains to be seen how much work has been done after utilizing such a huge amount of money and unfortunately, our government departments are still not serious about running such an important project.
Interestingly, based on the Punjab Planning Manual, all projects costing Rs50 million to Rs500 million and above should be based on feasibility studies prepared by the professionals hired by the ministries, divisions, departments or executing agencies for respective Project Management Units or Planning Cells. But as the investigation documents suggest, despite meeting these criteria in terms of the scope and cost of this project, the feasibility study regarding identification of clusters had not been conducted before implementation of CRIs, which is a clear proof of the incompetence of the officers.
Now, after spending such a large amount of money on the project, the basic targets of the project have not been achieved, while according to the documents, some of the basic objectives of the project are well behind schedule.
Same old story
The first thing that is the tradition when a government project begins is hiring, beginning a marketing campaign with ads in the papers and photo-ops. This is followed by getting a Human Resources team, which is recruited. In this case, this team itself was 28 people, after which IT equipment was arranged, including state of the art laptops, computers, printers and all manner of other equipment.
This is all accompanied side by side by the purchase of office furniture, electric equipment, setting up offices and the like. All of this was done in a hurry and very enthusiastically, which made it seem like the project will be completed on time, which as we know, did not happen. But again, it is easier to pick colour schemes and choose office wallpaper than it is to actually put in the work required to pull off these projects. If we look at the plan of the project, according to it, the project executing agency (PSIC) had to create a website and print material for marketing, for which a website has been created since the project started and 500 booklets of CDI, six hundred copies of each cluster’s diagnostic study report and several flyers and printing materials were produced.
One study tour was conducted for exposure to well performing clusters in relevant sectors for best practice exchanges, four analytical studies were conducted including value chain analysis and cluster diagnostic studies whereas analytical studies in four newly selected clusters were carried, 11 sensitization and awareness raising events for key stakeholders in the priority sectors were conducted, the development of concept paper for the establishment of an Industrial Intelligence Unit has been submitted by the PSIC, two international experts have carried out five missions to Lahore (June, July, August, September and December 2017) to provide on the job training and guidance to cluster management teams. Moreover, they [missions] have provided technical support to cluster management teams from afar during the implementation of the cluster diagnostic studies as well as action plans. Seeing all these activities, it seemed that no force could stop the success of the project, but the report of the sub department of P&D showed that the project has not fully achieved its original objectives.
The basic aim of the project was to enhance productivity and competitiveness of SMEs, in this regard, the project has identified eight clusters: Surgical Instruments in Sialkot, Auto Parts Lahore, Readymade Garments Lahore, Leather Footwear and Products Lahore and all these four clusters were approved and in execution phases whereas the other four clusters including Sports Goods Sialkot, Electric Fans Gujrat, Cutlery and Hunting Knives Wazirabad and Gloves Sialkot were also approved and cluster teams were working on diagnostic study report of the clusters.
The report revealed that as per the plan, the project has a target of 12 Cluster Reinforcement Initiatives (CRIs) in the identified clusters and as per PC-I, an amount of RS 250 million were also allocated for CRIs. However, the project has executed only 4 CRIs in the clusters. In the Auto Part cluster, implementation of CRI-I (Operationalization of the Auto Parts Support Center (APSC) was under process and a business plan was developed whereas to operationalize APSC, review of options under PPP (Public, Private Partnership) mode was also under process. Similarly, in the Leather Footwear & Product cluster, CRI-I (Establishment of Design Centre) was under process and business plan has developed and to operationalize the design studio and collaboration with local and foreign institutions was under process in PPP framework. Moreover, the 2nd CRI related to above mentioned clusters i.e. Productivity Improvement was under process and the hiring of consultant firm(s) for implementation of intervention was in process. The consultant firm(s) has been pre-qualified and RFPs (request for proposal) have been floated to the shortlisted consultancy firms.
“Based on field monitoring, it is recommended that the project team should gear up the project’s activities (Especially execution of 12 planned CRIs) to complete them within the approved timeline as per PC-I. Sustainability Plan / Exit Strategy should be the part of PC-I document which is not part of the PC-I. Planned CRIs under this project should be implement in parallel to avoid delays in the execution of these initiatives. The work on the project’s Impact Assessment Study should be started without any delay as the activity is already behind the planned scheduled time i.e. 3rd quarter of 2019-20 to 2020-21. Internal monitoring of the project by the Admin department should be conducted on a regular basis and the monitoring reports should be online for ready reference” read one passage from the report.
The report also stated that the delay in implementation may lead to increase in cost overrun and resultantly financial burden on the government and delay in facility may cause increase in the revenue as well as recurring cost. P&D sources believed that the government had not allowed any shortage of resources for the completion of the project.
“On the one hand, the government claims that most of the work is being done to facilitate SMEs and on the other hand, such projects are being destroyed. Is anyone going to ask the project stakeholders why the work on CRIs could not be completed despite so much time and resources? The minister for industries has been making statements that the project will revolutionize investment in the province, while on the other hand, it is not yet known who is responsible for the delay. The Industries Department and the concerned agencies should conduct a thorough investigation of the project and audit the amount spent and take action against those responsible for the delay in the project,” they suggested.
Surprisingly, the project stakeholders are not willing to answer any questions. When the project director Tayyba Kamal was approached by Profit in this regard, she objected to the report and said that the said report was not final yet but only a draft of the report has been prepared.
“The project is not behind schedule at all, but we added four clusters to the project which were not part of the PC-1 of the project. We have forwarded all the queries regarding the project to the said department and the report issued by them will be corrected soon. When the final report comes, everything will be clear in it,” she maintained. However, the director apologized for being too busy answering further questions.